Compensation for excessive ground rents
- Published: Thursday 12 December, 2019
- Updated: Tuesday 05 May, 2020
- By: Nicola Eaton
Landlords who have invested in new build leasehold property, since 2000, may be subject to compensation if the ground rents they have been charged are excessive.
From that time, developers started selling property on a leasehold basis, so they could generate income from ground rent.
Some developers sold the freehold to offshore investors, who in some cases, have used the opportunity to bump up the charges beyond a reasonable figure.
Statistics available show that, of 4 million leasehold properties in the UK, around 100,000 are subject to excessive ground rents. Owners of these properties may be subject to compensation.
What is ‘ground rent’?
Where a property “freehold”, the buyer owns both the land the property is built on and the property itself. Where a property is “leasehold”, the buyer only owns the property, not the land, and consequently pays ground rent for the property occupying the land.
Ground rent can be fixed or escalating (increase over time), over the term of the lease.
What is deemed “excessive” ground rent?
Ground rents have typically been a low figure of around £50 per year. Ex-local authority property may be subject to a lower figure, of around £10 per year.
However, if a ground rent charge starts at, say, £250 and is charged on an escalating basis, which increases every few years, that cost can become a huge amount of money.
Ground rents and mortgage lending
If an investor is considering buying a property subject to unreasonable ground rent clauses, some lenders may refuse to issue a mortgage loan.
If this is the case, the value of the property may plummet as a result.
Take action if this affects your property
Investigate the terms of your purchase if you are concerned. You may be able to:
- Negotiate with the freeholder to change the terms of the lease and ground rent charges,
- Buy the freehold.
But, be wary. Some freehold prices have been significantly inflated.
If the solicitor, appointed to handle the conveyancing work, did not give appropriate advice relating to ground rent, they may be guilty of professional negligence. If this is the case, you may be subject to compensation.
You are also invited to contact the Competition and Markets Authority, to contribute to their investigation of the matter, with your own evidence, see below.
The CMA investigation
In June 2019, the Competition and Markets Authority (CMA) launched an investigation into whether terms of leases have been fair to the buyer, focussing on 1) Potential miss-selling 2) Potential unfair terms.
Updates on the investigation can be found online here. However, at the time of writing no conclusion has been reached to determine whether consumer protection law has been broken.
The CMA are asking for anyone affected to provide information via the appropriate following email address:
You are asked to include:
- The property address as a heading
- Any relevant material
e.g. if you are issuing a complaint:
- The person you are complaining about
- As much detail as possible, including timescales, dates, values and frequency of payments
Buying leasehold property in the future
On the 27th of June, the government announced three key measures taken to stop unfair leasehold terms and ground rents on future property sales:
- Pernicious ground-rents on new leases to be reduced to £0 – preventing leaseholders being charged soaring fees for which they receive zero benefit
- All new houses to be sold on freehold basis unless there are exceptional circumstances – ending unscrupulous practice of unnecessary leaseholds
- Immediate action to ban Help to Buy being used to support leasehold houses – stopping taxpayers’ money being used to fund unjustified sale of leasehold houses
Source: Press release “Leasehold axed for all new houses in move to place fairness at heart of housing market” from Ministry of Housing, Communities & Local Government and The Rt Hon James Brokenshire.
Is bamboo the next Japanese Knotweed?
Property investors have long known the potential problems caused by Japanese Knotweed. The risk it poses to a building’s structure has implications for securing a mortgage. Experts are now asking if bamboo could be set to cause similar problems?
Japanese Knotweed was introduced to the UK in 1850. Its association with property came about because of its vigorous growth.
The plant is capable of weakening the structure of a property. It can grow into weak structural points, such as cracks and mortar joints between bricks.
The rise of the bamboo plant
In recent years, bamboo has grown in popularity in gardens around the UK. The benefits of bamboo’s similarly fast growth, its robust nature and height has found it increasing used to add privacy and structure to UK gardens.
In small spaces such as a standard Victorian terrace, (also popular rental properties), bamboo can be particularly useful to shield a courtyard garden from neighbouring properties.
However, whilst these features are useful, the prolific nature of ‘running’ bamboo may carry with it similar issues to Japanese Knotweed.
There are two types of bamboo plant, clump-forming and running. The first is fairly self-explanatory. The root spreads no further than about 5- 10cm from the original plant. Running bamboo, by contrast, has an underground system of stems. This can result in new bamboo canes growing 60-80cm from the original plant.
Where this could bring the plant into contact with a property, whether that is the walls themselves, hard landscaping or sewerage/drainage pipes, the concern is that bamboo could cause similar damage to Japanese Knotweed.
How significant a problem is bamboo?
A quick internet search quickly bears out the concern raised. The Telegraph reported on the issue earlier this year, the Express raised it in May 2018, and it is easily found as a subject for debate on community network MumsNet back in 2011.
How to get rid of bamboo?
Where rental properties have gardens that include bamboo plants, it is useful to be aware of the potential issues surrounding the plants. Running bamboo tends to be more popular because of the height it achieves.
If you do fear bamboo plants may start causing you problems at your property, it is not so easy to tackle. Herbicides may work over time, but large plants may take repeated applications.
You can limit the removal of the plant’s unwanted areas of growth by cutting through the underground stem system with a spade and then targeting the section you want to remove.
Otherwise, it is possible to dig-out the plant. The RHS discuss the subject and methods online here.
Aldermore puts Oxford in pole position
Challenger bank, Aldermore, has made an analysis of 25 UK cities, to find the best buy to let opportunities for property investors. Oxford has topped its ranking, with Manchester and Edinburgh joint second and London in third place.
How have Aldermore formulated their ranking?
The key performance indicators used to apply a ranking on each city are:
- Average rent per room, per month
- Short term yield for a new buy to let purchase
- 10-year average rise in property prices
- Percentage of vacant properties per city
- Overall size of the rental market by city
Also used within their analysis are statistics from the Census, the Office of National Statistics, and other official housing data sources.
Why does Oxford rank top?
Oxford boasts a number of successful measures. 28% of residents in the city rent from private landlords, which is amongst the largest proportion of all the cities ranked.
The city also enjoys strong income from rent, with the average rent per room per month currently sitting at £596.
Oxford has one of the lowest property vacancymeasures and property price growth is 4.8% over the last 10 years.
Aldermore’s top 25
Strong in the South
Much has been made of London’s tribulations as Brexit has rumbled on, however, the nation’s capital ranks third in Aldermore’s report.
London is not the only southern city to find favour.
Norwich, Bristol, Cambridge, Brighton , Milton Keynes all fall within the top ten, and Plymouth only just slips outside of this net, at position eleven.
Manchester for the North of England is strongly placed in second position and Edinburgh holds the same score for Scotland. Cardiff ranks inside the top 20 for Wales.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.